Minnesota health plans see increased costs in 2012

Per-person spending by the state's nonprofit health insurance companies on medical care during 2012 rose 5.1 percent from the previous year, according data released Monday, April 1, by the Minnesota Council of Health Plans.

That was a significant jump compared with the rate of medical cost inflation during 2010 and 2011, according to the St. Paul-based trade group.

In 2011, for example, the annual increase in per-person spending was 0.4 percent -- likely because some patients delayed elective procedures during the slow economic recovery, experts say.

The growing medical costs hit the operating profit margins last year for health insurers including Blue Cross and Blue Shield of Minnesota, the state's largest carrier. And they are part of a trend noticed nationwide that's possibly a sign of a strengthening economy.

"In 2012, we saw the trend of historically low claims expense come to a close, which contributed to the operating loss that we experienced during the year," Jamison Rice, chief financial officer at Eagan-based Blue Cross, said in a statement Monday.

"During the recent recession, our members did not seek levels of care consistent with historical patterns, and utilization was lower than expected. As the overall economy strengthened, the volume and cost of our medical claims rose, contributing to the operating loss experienced last year."

In 2011, for-profit health insurance companies across the country were reporting monster profits because of lower-than-expected increases in the overall cost of care.

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With the slow economy, some consumers delayed some medical procedures rather than pay out-of-pocket to satisfy high deductibles, said Steve Parente, a health economics expert at the University of Minnesota.

The economy also dampened demand in other ways, Parente said, as transportation and child care barriers for obtaining care became more pronounced.

"It actually takes money to go and get care," he said, adding that Blue Cross of Minnesota isn't the only health insurance company to note a recent reversal of the trend,

"As the economy is improving ... we're back to a historical trend that's pretty much above the general inflation rate," he said.

When health insurers report an increase in per-person health costs, it means people are using more services and/or the cost of each service is higher, said Julie Brunner, executive director of the Minnesota Council of Health Plans.

While numbers released Monday by the trade group don't show exactly how much of last year's cost increase was driven by use as opposed to high prices, higher payouts were found across the board.

During 2012, spending for care provided by hospitals in outpatient settings grew by 10 percent compared with the previous year. Spending for care provided by chiropractors, therapists, social workers and nurse practitioners grew by 15 percent.

Prescription drug spending grew by 14 percent, according to the report, while spending on physician services grew by 8 percent.

Modest increases in medical costs during 2010 and 2011 allowed health insurers to keep average premium increases at a relatively modest level. Eileen Smith, a spokeswoman for the trade group, would not speculate on the future but noted "premiums are set based on how much it costs to provide care."

So consumers could be hit down the road.

The trade group's numbers draw on annual financial reports that were released Monday by Blue Cross and six other nonprofit insurers in Minnesota, including Bloomington-based HealthPartners, Minnetonka-based Medica and UCare, which is based in Minneapolis.

Overall, the insurers posted a collective operating profit of about $120.1 million last year on $20.9 billion in premium revenue. The profit was down by about 66 percent compared with 2011, when the insurers had an operating profit of $355.7 million on $19.8 billion of revenue.

The operating profit margin in 2012 was 0.57 percent, compared with 1.8 percent the previous year.

During 2012, the insurers collected $145.7 million in investment income. With the operating and investment profits, the companies increased their collective financial reserves to $3.02 billion at the end of last year from about $2.8 billion at the end of 2011.

Nonprofit health plans in Minnesota operate insurance company subsidiaries, which primarily serve commercial customers, as well as HMOs that manage care for patients in the state's public health insurance programs.

Lawmakers increasingly have scrutinized HMO profits from the public program business in recent years. Monday's numbers show that HMOs ended 2012 with an operating profit margin of 1.4 percent from public programs -- $56.7 million.

"Managed care continues to demonstrate excellent value that allows the state to predict its budget and provide excellent coverage," Brunner said in a statement.